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The future of European banking – A central bank perspective
IIEA Conference Dublin, 2 December 2013
Philip Reading Director, Financial Stability and Bank Inspections Oesterreichische Nationalbank www.oenb.at
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Source: BIS 2012Q4, Eurostat 2012.
Austrian banks’ foreign exposure focuses on CESEE, …
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Austrian banks with a commitment to CESEE and a focus on EU and investment grade countries
3
Austrian Banks in Central, Eastern and Southeastern Europe (CESEE)
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Returns are higher than in Austria, but so are (credit) risks …
Source: OeNB.
Profitability • Activities of Austrian banks remained profitable
throughout the crisis • Profitability weakened mainly due to worsening
credit quality, but also goodwill write-offs and materialization of political risks
• CESEE activities contribute significantly to consolidated profitability on an aggregate level
Credit quality • Consolidated credit quality driven by CESEE
activities • Heterogeneous developments in individual
CESEE countries (next slide)
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… and both are becoming more concentrated in only a few countries.
Source: OeNB. *2013Q2 net profit after tax not annualized.
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Challenges of Austrian banks are being addressed Strengths Challenges Responses
Retail-orientated business model - Customer loan and deposit
business - Financing the real economy - Liquidity position intrinsically solid,
low dependence on wholesale funding
- Profitable throughout the crisis - Main markets in Austria and
CESEE
CESEE - Unfavourable economic and political
environment in some countries - Capital ratios at group level below
CESEE peers - Dependence on intra-group funding Foreign currency loans - High stock of foreign currency loans
in Austria and CESEE - Underperformance of repayment
vehicles Structural aspects - Net interest margins, low profitability
in the domestic business
Sustainability Package
Minimum Standards /
Guiding Principles
BIRG and RRPs
(in progress)
International Environment - European banking sector: Deleveraging, balance sheet repair, sovereign-bank
linkages - Sovereign debt market: Reduced pressure, remaining uncertainties - Weak macroeconomic environment in the Euro Area
ECB: Liquidity, CRR/CRD IV, Banking Union
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The „Vienna Initiative“ played an important role in containing spillover effects from the global financial crisis…
Public/private cooperation: • IFIs (IMF, EBRD, EIB, World
Bank) • European Commission and
ECB • Home and host regulators • Large banking groups
Objective: • Maintaining of European
banks‘ exposure in the region
Follow up: • Development of local currency
and capital markets • Role of banks in absorbing EU
structural funds • Impact of new regulatory
standards • Management of NPLs
Results of an IMF working paper “Foreign Banks and the Vienna Initiative: Turning Sinners into Saints?”, 2012 • Banks committed to the VI:
• Foreign banks that participated in the Vienna Initiative were relatively stable lenders
• VI banks did not retrench from non-VI countries
• Rather positive spill-over effects to non-VI countries
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… but a leopard can‘t change its spots.
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